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Momentum Multi-Asset Value reflects on strong year of total returns close to 50%

PEY

Momentum Multi-Asset Value (MAVT), formerly Seneca Global Income & Growth, reported its annual results to 30 April 2021. The NAV total return was 47.9%, while the benchmark return amounted to 7.5% (CPI plus 6% per annum). The return to shareholders was 48.5%.

Regarding some of the corporate developments over the year, MAVT noted that In March, the company adopted its new name, Momentum Multi-Asset Value Trust plc, reflecting the sale of the Manager (Seneca Investment Managers Limited) to Momentum Global Investment Management (MGIM). The company’s new name also clearly describes the multi-asset portfolio as well as the value investment style of MGIM. 

It is worth reiterating that the investment management team responsible for the strong performance of the company has not changed because of the sale.”

More to come in closing the disparity between Value stocks and Growth stocks?

MAVT’s managers report had this to say:

“In recent years, the environment has not been favourable to our Value investment style. Over the last decade we have witnessed significant outperformance of the Growth style which accelerated even further over the last five years. The spread of valuations between Value and Growth stocks was compelling before the pandemic but the COVID-19 induced lockdowns widened the gap further as Growth stocks, technology and healthcare companies in particular, were the beneficiaries. In many cases the market appeared to have completely abandoned normal valuation disciplines and instead expectations of growth, sentiment and momentum became the dominant drivers of investment decisions – this is the complete antithesis of our investment approach. We have seen all this before and, using history as an indicator, the disregard of the valuation discipline always ends abruptly and is followed by a strong Value cycle. We believe we are entering another rotation into a strongly supportive environment for MAVT’s investment style.

We seek to invest in stable, ‘real world’ areas such as toilet roll manufacturers, housebuilders, underwear brands and insurance companies. MAVT’s investments will always be backed by real cash flows which are distributed to investors or reinvested to increase long-term earnings. There is no sentiment, hype or momentum rolled up into the share price of your investments that can be wiped out overnight.

While some sectors of the market are still trading on exceptionally high valuations, MAVT owns a portfolio of investments with attractive fundamentals. For example, at the time of writing, your Company’s Japanese equity exposure trades on a price to book ratio of 0.74x with 51% of market capitalisation consisting of cash and investments. Its US equity exposure has stronger earnings per share growth over the long-term than the S&P 500 but is currently trading on a price to earnings multiple of 12x compared to 22x for the index.  Your Company’s UK equity exposure trades at a price to book ratio of 1.4x versus 2.3x for the index, yet the average return on equity is 13.8% versus the index average of just 8.8%.

2020 was an exceptional year for returns but the valuation anomalies at the start of the year were so great we believe we are only just beginning to close the disparity between Value stocks and Growth stocks.

The period under review encapsulates the recovery from what we believed to be seriously oversold markets at the end of March 2020 as the COVID-19 pandemic took off around the world. There are several key factors that contributed to the significant returns achieved by your Company.

Style: After a decade of underperformance there have been numerous catalysts this year that have sparked a reversal in the fortunes of the Value and Growth styles in favour of Value.

UK Equities: The UK market was already trading on a deep discount to other global markets because of Brexit uncertainty. This was further compounded by the UK Government’s slow initial response to the handling of the pandemic. We saw this as an excellent opportunity, with six new investments being added to our UK exposure and the topping up of several existing investments that were trading at historically low valuations. The second half of the period saw the Company’s UK Equity investments gain 63% versus the index rise of 29%. This made the Company’s UK Equity exposure the major contributor to returns over the year, comprising approximately half of the 47.9% NAV total return despite averaging little more than a third of the portfolio by weight.

Active Management: Market volatility over the past year has provided investors with opportunities and threats, in equal measure. We have looked for compelling new opportunities in high quality stocks that previously traded above our valuation threshold but had corrected to more reasonable prices. We also added to some of our current investments at attractive levels. In addition, we took the opportunity to take profits from stocks that outperformed through the pandemic by reducing Investec Global Gold and Merian Chrysalis (now renamed Chrysalis). The monies from these disposals were then invested in stocks trading at lows such as HalfordsArrow Global and Purplebricks. These companies consequently became major contributors to performance.

In addition to the broader areas discussed above it is also worth looking at some of the major contributors to performance on an individual holdings level.

Contribution analysis by individual holdings in the year to 30 April 2021:

Contributors

Asset Class

Contribution

1.Arrow Global Group

UK Equities

+3.11%

2.Halfords Group

UK Equities

+2.86%

3.Purplebricks Group

UK Equities

+2.83%

4.Marston’s

UK Equities

+2.59%

5.Chrysalis Investments

Specialist Assets

+1.85%

Detractors

Asset Class

Contribution

1.Babcock International Group

UK Equities

-0.82%

2.DP Aircraft I

Specialist Assets

-0.57%

3.Round Hill Music Royalty Fund

Specialist Assets

-0.06%

4.Kier Group

5.Accrol Group

UK Equities

UK Equities

-0.04%

 0.00%

There have been no major detractors to performance. DP Aircraft was severely hampered by the pandemic but as one of the smallest holdings in the portfolio the impact has been relatively minor. Babcock International shares have come under pressure as the market feared issuance of new equity to strengthen the balance sheet but we did not believe this would be necessary and that the shares were undervalued. While some of Babcock’s assets were impaired, and the profitability of some contracts written down, the amounts finally announced were less than feared by the market. The company has also ruled out the need to raise fresh equity. We expect a strong recovery from here with the shares trading at a price to book ratio of 0.6x compared to a 10-year average of over 2.3x.MAVT:”

[The returns for the period reflect a period of recovery following the sharp falls in NAV and share price in February and March last year. The NAV is now hitting new highs but the trust has an explicit objective of producing returns with low volatility and clearly failed in this regard. In our view, the board should either remove this part of the objective or review what can be done to avoid a similar episode in future.]

MAVT: Momentum Multi-Asset Value reflects on strong year of total returns close to 50%

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